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Quarterly Derivatives Fact Sheet -- Fourth Quarter 1996
Read Section: General.......Risk........High-risk Mortgage Securities and Structured Notes....Revenue
General
The notional amount of derivatives in commercial bank portfolios increased by $217 billion in
the fourth quarter to $20 trillion. During the fourth quarter of 1996, the notional amount of interest rate contracts rose by $169 billion, to $13.4 trillion. Foreign exchange contracts increased by $31 billion, to $6.24 trillion (this figure excludes spot foreign exchange contracts,
which decreased by $305 billion to $262 billion). Commodity and equity contracts rose by $16 billion, to $366 billion. The number of commercial banks holding derivatives decreased by 18 in the fourth quarter to 483. Relative to year-end 1995, the total notional amount of derivative contracts increased by more than 18 percent. [See tables 1, 2, and 3.]
Approximately 67 percent of the notional amount of derivative positions was comprised of interest rate contracts with an additional 31 percent represented by foreign exchange contracts. Commodity and equity contracts accounted for only 2 percent of the total notional amount. The composition of contract types remains relatively unchanged since 1991. [See Table 3.]
Off-balance sheet derivatives continue to be concentrated in the largest banks. Eight commercial
banks account for 94 percent of the total notional amount of derivatives in the banking system, with 98 percent accounted for by the top 25 banks. [See Table 3.]
Over-the-counter (OTC) and exchange-traded contracts comprised 87 percent and 13 percent, respectively, of the notional holdings as of fourth quarter, that proportion has remained virtually the same since the first quarter of 1996. [See Table 3.] OTC contracts tend to be more popular with banks and bank customers because they can be tailored to meet firm-specific risk management needs. However, OTC contracts tend to be less liquid than exchange-traded contracts, which are
standardized and fungible.
The notional amounts of short-term (i.e., with remaining maturities of less than one year)
contracts are up $650 billion from the third quarter, to $9.3 trillion. Contracts with remaining
maturities of one to five years decreased by $707 billion, to $3.7 trillion, and long-term (i.e., with
maturities of five or more years) contracts increased by $129 billion, to $1.3 trillion. [See tables
10, 11, and 12.]
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